Wednesday, 2 June 2010

Apples and Oranges

Following from my last past, I shall continue my theme of "measuring the correct thing".

For the last few days the media, and the BBC in particular, have been obsessed with the publication of the salary of civil servants who earn over £150k - or, as the BBC insisted of describing it "more than the Prime Minister". I'm all in favour of the publication of salaries - certainly in publicly funded bodies - but the comparison is unfortunate at best. The salary of a civil servant and the Prime Minister should not be compared - the jobs are not similar, the attraction of the jobs are different, the motivations of those in post are different, and the period of employment is significantly different. The last three Prime Ministers have gone on to earn good seven figure salaries having left office, and there is nothing to make me think that the most recent ex-PM should be any different. Comparing the two simply causes confusion - does it mean that the PM is underpaid or that the civil servants should be given a pay cut?

The reason that I mention this is that the same confusion is caused when firms insist on focussing on the wrong numbers - revenue and PEP, for example. There are plenty of examples - Olswang are happy that their PEP has risen by 38% while revenue rose by 2% (and are happy with the phrase "a draconian line on discretionary spend" worryingly). Eversheds published an increase in PEP of 28% while revenue dropped.

I had said this many times before, but it would appear to need repeating  - these are the wrong numbers to be concentrating on.

PEP is a measure of personal wealth - not a measure of how well any firm is working. It does not measure client satisfaction, client retention, long term planning, quality management - or any other useful indicator. The only thing it says is "look how much the partners here earn!". What other industry does that. I can probably find out what the partners at KPMG earn - but it's not easy. I tried to find out what the partners at the Brunswick Group LLP - but couldn't. That's probably because, as experts in communications, they understand that to boast about partner pay is not useful or sensible.

I may never understand why law partners both insist on using PEP as a measurement and then actually publishing it. It would be wonderful if the industry would move towards measurements based on the firm. Let's look at firm profitability, or an increase in profitability over a period, or increase in client satisfaction or any of the measurements used by most other types of companies.

The time has come for law firms to join the "sensible measurement club". Please.

1 comment:

  1. Peter

    A great post but I wonder how many senior equity partners are going to echo your comments! Also, I wonder how many clients would be fascinated to learn these figures? Like you I am not sure why these numbers get pushed out; is it some sort of oneupmanship between law firms or a way perhaps of keeping the troops motivated? Surely the focus must be on profit but more than that what about reinvestment or even going the John Lewis Partnership route and to start distributing more of the profit amongst the employees (which I know does happen in some firms now).

    Best wishes